Kevin Keegan has effectively challenged Mike Ashley either to dismiss him or redefine Dennis Wise's role at Newcastle United. As the impasse over the manager's uncertain future continued yesterday a source close to him indicated that he wanted full control of all transfer activity: "Kevin still wants the job, make no mistake about that - but he would like to be able to buy his own players."

It was thought Keegan had been sacked by Ashley, Newcastle's billionaire owner, after bitter rows with Wise, the club's director of football and with Derek Llambias, the managing director, on Tuesday. But after hours of silence the club eventually released a statement insisting this was not the case.

The Newcastle players are understood to be furious with the handling of the saga and it is expected that a player delegation led by Michael Owen will demand answers from the board about Keegan's future. The squad are said to be behind Keegan and would not want Wise - who ideally Keegan would like to see removed from his role - to take over as manager.

With Keegan seemingly refusing to resign and the club declining to dismiss him, he retreated to the north-west where he has a house in Hale, Cheshire. The former England coach spent Tuesday evening consulting his lawyers in a Manchester hotel and discussing his position with the League Managers Association, then failed to supervise training for the second consecutive day yesterday.

A St James' Park spokesman released a mid-morning statement saying: "Newcastle United football club can confirm that discussions are ongoing between the board and Kevin Keegan. Both the club and Kevin would like to reiterate that Kevin remains as manager. He has not resigned nor has he been sacked."

Yesterday's Newcastle Evening Chronicle contained an interview with the aforementioned source "close to" Keegan. After insisting that the manager wanted autonomy over transfers - something precluded by the continental managerial structure introduced by Ashley at St James' - the source argued the case for a policy change, explaining: "If Kevin was allowed to bring in his own players and failed he would be the first to hold his hands up. But he has always bought flair players who get people off their seats."

Reports last night went as far as to say Keegan had sent Ashley a letter through his legal advisers demanding control of all first-team affairs and contracts and the removal of Wise and Tony Jimenez, the vice president (player recruitment).

Wise's control of transfers has long been a bone of contention and this week's upset was sparked by the board's failed attempts to sell Owen and Joey Barton before the transfer deadline. However, handing control to Keegan would necessitate the removal or demotion of Wise, who earns £1.5m a year and is close to Ashley.

Matters are further complicated by the fact that Keegan is believed to have demanded £8m in compensation for the remaining three years of his Newcastle contract. He remains adamant he will not resign and it has been reported that, under the terms of his contract, walking away would leave him liable to pay back more than £1m to Ashley. Yet if Ashley continues to refuse to sack Keegan while preserving Wise's position and powers, the manager could launch a legal claim for constructive dismissal. With spiky Newcastle fans waving banners demanding that Keegan stays and calling for the departures of both Wise and the club's owner, the suddenly deeply unpopular, and reportedly shocked, Ashley has some major decisions to make.